What’s a Common Level Ratio, and why should I care?

Thursday

Aug 17, 2017 at 12:01 AM

By David Pierce

Successfully appealing a high property tax assessment can be costly and time-consuming, although it’s no longer as daunting as it used to be.

Allentown assessment attorney Anthony Thompson found out the hard way in the late 1970s when his client, owners of a new Holiday Inn franchise at Routes 22 and 309, chal-lenged their tax assessment as unfairly high. But the Holiday Inn had to prove its case, and this meant the owners had to compile their own survey of comparable property values.

"These are damn expensive studies," said Thompson, an Eldred Township resi-dent. "Ordinary taxpayers and even small business taxpayers can’t afford it."

"We took a comfortable level of cases," Thompson recalled. "That number alone was in the hundreds."

Thompson and the Holiday Inn won their case and a lower property tax assessment. But, more importantly, as far as other owners of taxable property are concerned, the case helped prompt the Pennsylvania Legislature to provide a new tool for those who appeal their prop-erty assessments.

This is where the State Tax Equalization Board enters the story. The board was established in 1947 to compensate for the lack of assessment uniformity statewide in distributing school subsidies. The agency collects real estate sales records and compares annual property values in every Pennsylvania school district, to help the state Education Department ensure that poorer districts with a smaller property tax base receive more state aid.

After the Holiday Inn case, legislation was enacted in 1982 requiring the Tax Equalization Board to begin compiling annual surveys of arms-length property sales for each county and municipality. The board must also make that information available to local officials and the general public.

Those surveys are used each year to compile a Common Level Ratio — a comparison of a previous year’s actual sale prices to the assessed value of properties set by the counties. Since counties use the base year when all properties were last reassessed to arrive at comparative property values — 1988 for Monroe, and more than two decades ago in some other counties — the Common Level Ratio, based on sales two years ago, is a more accurate reflection of current property values.

The agency uses a complicated formula whereby a property’s assessment is divided by the recent selling price to arrive at a ratio. If a property assessed at $20,000 sold for $100,000, then its ratio is 20.0. All ratios are added together and divided by the total number of sales (4,404 in Monroe County in 2000) to come up with the mean ratio. An additional calculation is used to throw out "extreme" high and low sales.

"We think it’s easier to use a mean ratio because we can equate it to a batting average or a bowling score," says Thomas J. Connelly, executive director of the State Tax Equalization Board.

If the state’s Common Level Ratio is more than 15 percent above or below the county’s as-sessment rate, then the Common Level Ratio of more recent market value will be used as the basis for weighing the merits of any property owner’s appeal of a tax assessment.

But if the county’s predetermined assessment rate is within the 15 percent margin of error, then the county gets to use its base-year assessment ratio as the basis for determining the merits of any property owner’s challenge of an assessment.

Monroe County’s predetermined assessment rate is 25 percent of market value, and is based on property values applied in 1988 when Monroe completed its last systematic reassessment.

That 25 percent rate was just barely within the margin of error compared to the last state Common Level Ratio of 21.3. So the county got to use its assessment ratio in all challenges last year before the three-member county Board of Assessment Review.

Number-crunching aside, in counties where the Common Level Ratio is used, a decline in general property values might make the difference between winning or losing a case for a lower property assessment. Then again, maybe not.

"The Common Level Ratio is not an instrument that automatically reduces people’s assessment and, consequently, taxes," says Connelly. What it does is provide a possible alternative to the county’s assessment figures, in an effort to come up with the most accurate method of comparing relative property values within a taxing jurisdiction to each other.

"Why do we have a Common Level Ratio in the first place?" attorney Thompson repeats in response to a question. "It is to allow for relative uniformity."

Before 1982, Pennsylvania court rulings could allow assessment challengers to cite just a few comparable properties in the same neighborhood to show a lack of assessment consis-tency. As far back as 1930, the Pennsylvania Supreme Court ruled that to require a taxpayer to produce testimony on the value of other properties throughout an entire taxing district was so expensive and burdensome as to be a denial of justice.

Since adoption of the Common Level Ratio, however, the courts have been satisfied that this mechanism does indeed ensure uniformity in determining relative property values.

Pennsylvania Commonwealth Court, in an August 2002 opinion, upheld a Monroe County Court decision denying a uniformity challenge filed by residents of Lake Naomi Development in Tobyhanna. Robert and Thelma Baechtold agreed with the county that their property’s fair market value is $430,502, but disagreed with the county applying its 25 percent ratio in 2001 to come up with an assessment for tax purposes of $107,630.

The couple said the ratio resulted in an assessed value that is unfairly high compared with those of their neighbors. They pointed to sales of eight other properties in the development, including a 1997 sale of $440,000 for a property assessed at just $24,120, and a $530,000 home sale in 2000 of a property assessed at $41,990.

The county court ruled that because the couple didn’t dispute their property’s fair market value, and because the county’s assessment ratio is within the range permitted by the Tax Equalization Board ratio, the uniformity challenge was without merit. The county court also cited a ruling in another case that uniformity challenges may no longer be based on data strictly from a neighborhood rather than the entire county.

In upholding the ruling, the Commonwealth Court wrote: "By requiring the State Tax Equalization Board to establish common level ratios, the General Assembly has obviated the danger of imposing an unfair burden upon taxpayers seeking to prove lack of uniformity."